August 3rd, 2021
Here’s what I find interesting about real estate schools: they teach you real estate theory and licensing code which, depending on how it’s presented, is about as interesting as the back of a cereal box. When things are presented in a way that doesn’t engage an audience, the smartest real estate agent you know will struggle to pay attention.
Real estate agents think fast. Their minds go a million miles an hour. They often drive fast. They’re busy, and they’re driven. But an undereducated real estate agent can also be a ticking time bomb for an independent broker because you (the broker) don’t know what they (the agent) don’t know. It could be a little or it could be a lot.
When you’re the broker, and you’ve got a team of agents, their errors are your errors. Sure, to maintain their license a real estate agent is required to take 21 hours of continuing education every three years, but how can you guarantee that the continuing ed they attend is quality? Or accurate?
Even a little mistake can cost you a lot of money and stress, or worse, damage your reputation. You might think that a broker is not responsible for an agent’s actions because an agent is a contractor, but that’s not true. It is in many industries, but not in ours.
It’s true that your obligations to independent contractors are far less than to your employees. In your real estate business, agents will work under your supervision, but they also maintain quite a lot of independence and control over their work. As a broker, you are not required to comply with U.S. Labor Laws in regards to the independent contractor relationship.
But here’s the catch: in many cases, a real estate broker can be held liable for the actions of their real estate agents, even though they are classified as independent contractors. As you may know, this is certainly not the case in other independent contractor relationships in other industries. This unusual set-up is why the IRS treats real estate agents as “statutory non-employees” for tax purposes.
So, let’s say one of your agents offers a promotion wherein they offer a fabulous gift card as an incentive for people to list with him. Is that illegal in your state? Or is it just frowned upon?
Let’s say your agent sends a gift card to someone who referred a client to them. If the person who made the referral did so without expectation of reward, and if the agent wanted to surprise that person with a gift, that is probably legal. As long as the agent hasn’t promoted that he or she would give thank-you gifts to people who send them referrals.
On the other hand, if an agent announces to the entire world (or Facebook) that she or he is offering a referral reward program, and the larger the referral the larger the gift card or reward, well then your agent is sailing perilously close to the wind and therefore so are you.
We’ll say it like a lawyer: Referral fees may not be paid to persons who refer buyers and sellers to a licensee. Gifts are legal. Referral fees masquerading as gifts are illegal.